A Bill of Rights for PR Firms
By Matthew Schwartz
Overservicing among PR firms doesn’t simply mean working for nothing. It’s a lot more costly. That’s because when your firm starts to expand client services—without being adequately compensated—it has a negative effect on the rest of the operation. Indeed, the repercussions for overservicing can make a bad situation considerably worse. Perhaps more so any other challenge they face, PR firm owners must take actions against overservicing lest they fall behind. To get some tips for how PR firm owners can tackle the problem, Gould+Partners spoke with David Klein, director of marketing at ClickTime, which provides time management software programs to PR firms and other creative services shops.
Gould+Partners: What’s the relationship between billable vs. non-billable time and the problems associated with overservicing among PR firms?
David Klein: Billable and non-billable time are measurements for how effective agencies are at utilizing the most important resource they have—their employees. Overservicing is when account executives or other team members perform out-of-scope, non-billable work on behalf of paying clients. By doing so, they are not only offering clients free services, they are limiting their capacity to take on other clients or jobs that may be billable or revenue generating. That’s why overservicing poses such a challenge for agency management. It’s not simply the non-billable hours; it’s the opportunity cost of not being available to contribute to other projects.
Gould+Partners: Take us through a common scenario at PR firms regarding billable vs. non-billable hours and how that hurts the financial structure of the firm?
Klein: This is something that, unfortunately, most agency owners know all too well. Let’s take a look at how overservicing can impact the bottom line: Say you’re an agency with 50 employees and, on average, each employee overservices just one hour per week. Assuming a $200/hour billing rate, through the course of a year, we’re talking about half a million dollars in overservicing. The formula is relatively simple:
# of employees x billing rate x over-serviced hours (assuming a 50-week year)
In terms of the firm’s financial structure, again what might be most concerning is not the free work (although that’s a major issue) but the opportunity costs associated with it. For example, when staffing a team for a new client, agencies try to map the right talent, staff roles and costs to a project to deliver on the client’s needs, while simultaneously maximizing profitability, catalyzing long-term client retention and upselling and setting the stage for referrals or work that helps brand the agency (also not easy). One of the few data points that operations executives and others have to work with is employee capacity: How many hours do employees have in order to take on new work? Overservicing pollutes this data and makes it appear that some employees might have less time to work on new projects than they actually do.
Gould+Partners: Can some of this be solved when firms start budgeting with their clients?
Klein: Yes, but this conversation has to start before the client budgeting conversation. Of course it’s important to discuss deliverables and terms—and set expectations with clients from the get-go—but it’s the pre-client, internal benchmarking that helps teams create accurate budgets and forecasts. The crux of that conversation revolves around two key questions:
- How long should a particular project take to complete?
- How much should a particular project cost the firm?
This is not to say objectively that a blog post takes “x” amount of time to write or a product launch takes “y” amount of time to complete. Rather, it’s about gaining an understanding of how much time—and at what direct cost to the business—certain activities tend to require
Gould+Partners: What are some of the initial and practical steps PR firm owners can take to reduce/remedy non-billable time?
Klein: Reducing non-billable time is by no means simple, but even small, incremental gains yield tremendous results—especially when employees are billing roughly $200/hour for your agency. Here are two practical steps PR firm owners can take:
> Focus on Communications. The most cost-effective way to reduce non-billable time is to clearly communicate your agency’s vision, goals and expectations. There’s no software or magic bullet that can replace solid leadership and agency direction. Does your team know why non-billable time is such an issue for your firm? Are there shared goals the entire agency is working toward? If so, how do non-billable hours (in excess) negatively impact that goal? Simply telling an account manager that he or she will be at 90 percent billable hours—without context and education and buy in—isn’t an effective strategy.
> Embrace Technology. Whether it’s modern accounting, expenses, project management or time tracking software, implementing the right technology can offer new insights for how to best manage your business. Leveraging best-in-class operational tools is one of the ways that top-performing agencies continually improve employee performance, automate processes, and reduce administrative costs.
How do these efforts jibe with your strategy to reduce overservicing?
Sign up for Gould+Partners and ClickTime Webinar: Reducing Overservicing and Maximizing Profitability: New Ways for Creative Agencies to Boost Their Value, March 28@ 1:30 p.m. ET.
Rick Gould, CPA, J.D., managing partner of Gould+Partners, is the author of “The Ultimate PR Agency Financial Management Handbook: How to Manage By The Numbers for Breakthrough Profitability of 20% or Greater,” and “Doing It The Right Way: 13 Crucial Steps For A Successful PR Agency Merger Or Acquisition.”
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